March 16, 2017

Intel Buys Israeli Tech Firm in Largest Tech Deal in Nation's History

TRNN's Shir Hever says Intel is attempting to add prestige to its brand while Israeli politicians strive for a political victory to create the appearance of an international foothold in the nation's economy

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biography

Shir Hever is an economist working at The Real News Network. His economic research focuses on Israeli occupation of the Palestinian territory; international aid to the Palestinians and to Israel; the effects of the Israeli occupation of the Palestinian territories on the Israeli economy; and the boycott, divestment and sanctions campaigns against Israel. His first book: Political Economy of Israel's Occupation: Repression Beyond Exploitation, was published by Pluto Press.

transcript

The largest deal in the history of Israel was wrapped yesterday, when the international corporation Intel bought the Israeli company Mobileye for $15.3 billion. Intel is the largest producer of CPUs in the world and the largest private employer in Israel. It had revenues of $60 billion, and a profit of $36 billion in 2016.

And its market value is estimated at over $160 billion. Now Mobileye is an Israeli technology company specializing in sensors for safe driving in cars, such as sensors that make sounds when the car is swerving, speeding, or about to strike an object. This technology is also designed to assist in building self-driving cars, as well.

Let's hear about how the deal was described by Israeli correspondent for "The Marker" magazine, Israel Fischer.

ISRAEL FISCHER: That's a vote of confidence for the Israeli tech industry. For a bit less than $15 billion, that's by far the biggest deal for the Israeli tech industry. Just a few years ago when Google bought Waze for a bit more than $1 billion that was huge news here in Israel, but now for $15 billion that's very big news and very big success for Israel.

KIM BROWN: Well, joining us now to give some more analysis and insight into this deal we're joined by our Real News Correspondent, Shir Hever, who is on the line from Heidelberg, Germany. Sher, thanks for being here.

SHIR HEVER: Thank you very much, Kim.

KIM BROWN: So, Shir what are the reactions in Israel to this deal? Because on one hand, the merger is a major investment in the Israeli economy, but on the other hand, Israel just lost one of its largest private corporations, which became part of Intel. What are the reactions this morning coming out of Israel?

SHIR HEVER: The Israeli high tech industry is very

exit-oriented. And I think not a lot of people expected Mobileye or any other company in Israel actually to try to stay an independent company. The greatest aspiration of most Israeli companies is to be bought by some multinational corporation like Intel in this case. And so, the responses within Israel are pretty unanimous. And even Prime Minister Netanyahu held a press conference with the CEO of Intel and with Mobileye to celebrate this deal and already announced that the Israeli Minister of Transportation is going to require new cars in Israel to have Mobileye systems in them.

KIM BROWN: Now, Intel has a long history in Israel. It has established a factory in a section of the country in 1996. And eventually became the largest private employer in the nation. So, why did Intel choose to invest in Israel?

SHIR HEVER: For Intel, they have factories all around the world. And specifically, in Israel that's not necessarily the best place for them to go open factories. But over the last couple of decades the Israeli government paid hundreds of millions of dollars to Intel in a series of grants to convince Intel to open a factory in the small town of Kiryat Gat, which is a very impoverished town in Israel, in order to help with the unemployment there, and to create jobs, and so on.

And this move has been very criticized within Israel -- why does the government spends hundreds of millions of dollars for a private company, basically giving them a present? Rather than invest this money in the population directly and helping people find jobs and start their own businesses, and so on?

And over the last decades the government continued to support Intel. So, Intel made a very easy decision to stay in Israel. For Israel, this was not just an economic policy, it was a political policy as well.

It's very important for the Israeli government to be able to say this international corporation has a foothold in Israel. It shows that Israel is a technological leader. So, they would lose face if Intel would choose to close the factory. And now, this decision of Intel to buy Mobileye, in many ways sort of justifies this policy of the Israeli government because all this money that they gave to Intel for free, maybe contributed to the decision of the company to buy Mobileye.

KIM BROWN: So, as for the company Mobileye, their technology is directed at reducing the risk of car accidents. So, why does an Israeli company choose to focus on this kind of technology?

SHIR HEVER: Israel used to suffer from a plague of car accidents. Very, very high number of deaths on the roads compared to other countries. The leading country in the world, in some types of car accidents, for example, hitting pedestrians on the sidewalk.

And a correspondent, Michelle Roshafsky, who has spoken frequently on The Real News, used to say that the Israeli drivers they cause all of these accidents because they live in a culture where there are no borders. And in the same way that the state of Israel doesn't recognize its own border, then expands, so do drivers sometimes swerve to the wrong lanes, and so on.

But, over the last two decades, there's been a big change. And this change in the car driving culture in Israel, and the rate of car accidents and deaths, is quite dramatic. According to the World Health Organization data, in 2013 Israel was among the 25 countries in the world with the lowest number of deaths per capita. And in fact, the chance of dying in a car accident in the United States is four times higher than it is in Israel. So, that's a very big difference.

And the way that they achieved that, the way that Israel changed is very telling about Israeli political culture. Because instead of addressing the actual causes of why people were driving recklessly, and disregarding the risks, they used technology as a kind of solution to circumvent the problem, to try to find technological solutions. And this is something that we see in Israel with a lot of political issues.

Instead of addressing the cause of Palestinian anger and resistance to the Israeli occupation, more sophisticated technologies are installed in order to control the Palestinians and keep them in check. And in the same way, car accidents were dealt with technology instead of with education, for example, and with some amount of success. Mobileye Company then produces specifically this kind of technology.

Rather than trying to deal with the question of how to teach people how to drive safely, to not to drive when they're tired, and so on. Instead, the company produces these sensors that help the driver, and warn the driver, or even affect the car somewhat by slowing down the car when there is danger. This is a kind of technology that is very associated with Israeli type of technology.

KIM BROWN: So, Shir what is the economic significance of this deal to Israel's economy? I mean, what will Intel do with Mobileye and how much of this money will reach the public in Israel?

SHIR HEVER: According to the statements of Intel, they plan to keep Mobileye in place and even bring in their entire department for vehicles into Israel. And specifically, into Jerusalem which is very interesting because Jerusalem is not very well known for its high-tech industry. And one of the founders of Mobileye said this is actually an opportunity to incorporate into the Israeli technology sector populations that are normally excluded from the technology sector: which are Palestinians and ultra-Orthodox Jews.

Now, in addition to that, we have the tax that Intel will have to pay for buying Mobileye because they have paid way more than the company's market value. So, that creates new value and they have to pay a tax on it of about over $1 billion. And this is also significant for the Israeli economy.

But on that end at least the teams that this tax money is going to be wasted because the government has already announced that they just plan to have some tax cuts and let this tax boon be distributed to the rich inside Israel, rather than to be invested in a worthwhile cause.

KIM BROWN: So, why did Intel decide to make this very large investment, spending about 10% of its own net worth to purchase Mobileye?

SHIR HEVER: I think this is the central question, because for Intel they made some questionable investment decisions recently. For example, they bought the McAfee Company and then they regretted it and sold the company at a loss. Or half the company they sold it at a loss. So, why would Intel buy Mobileye? A company producing this kind of technology which is not unique, there are many companies around the world that produce similar technology.

It's not like Mobileye has the patent or the unique technology for driver-assisting sensors. And Intel is focusing on that particular company and willing to pay at least a 50% premium on that company because, I think, Mobileye brings with it also some kind of prestige that Israeli high tech companies bring. This is interpreted as a victory for the Israeli propaganda for the Israeli image, that Intel chose to buy the company.

So, the company was actually estimated at about $10 billion at most. It was actually worth only $5 billion three years ago. So, if it indeed increased in value to $10 billion that's quite impressive; to $15 billion that's not likely. But the three biggest owners of shares within the company, the three founders of the company, each own 7% of the stock.

And I think this gives us a clue why the number $15 billion was chosen because then it makes all of these three shareholders billionaires. Each one of them just crosses the billion-threshold. And I think that convinced them that they should sell the company because to become a billionaire overnight is very nice.

But this is only if you really believe that Israeli's have some kind of knack for technology that can save lives, and really do it better than any other company. And I'm not completely sure that Intel made the right choice.

The only way that they can salvage this sort of deal and make a profit from it is if they manage to leverage this sort of prestige, use the Israeli prestige that Israeli companies have from the security industry, when they sell this kind of technology in other countries. And I'm not completely sure that customers around the world will be so keen to believe that, and to pay the extra premium.

KIM BROWN: Alright, well we will certainly keep an eye on this deal, as I'm sure it will have more developments as it unfolds. We've been speaking with Real News correspondent, Shir Hever, from Heidelberg, Germany. Sher, we appreciate your reporting on this story, thank you.

SHIR HEVER: Thank you very much, Kim.

KIM BROWN: And thanks for watching The Real News Network.

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